Late in 2023, the Reserve Bank of India (RBI) implemented a series of measures aimed at curbing excessive borrowing and ensuring the financial system’s stability. The effects of these actions continue to be reflected in bank lending patterns.
Credit growth in the personal loans segment registered a 14.0% year-over-year increase as of the fortnight ended February 21, 2025—down from an 18.0% increase during the corresponding period a year ago. This decline, particularly visible in other personal loans, credit card outstanding balances, and vehicle loans, underscores a deliberate shift toward more disciplined lending practices and cautious consumer behavior.
The deceleration in personal loans growth suggests that both consumers and lenders are adapting to a new era of tighter credit conditions. With RBI’s actions serving as a deterrent to excessive borrowing, consumers appear to be prioritizing financial prudence over unchecked credit expansion. While this trend may slow short-term consumption, it lays the groundwork for a more sustainable financial ecosystem that minimizes the risks of over-indebtedness.
While personal loans have taken a hit, other sectors have charted different trajectories. Credit to agriculture and allied activities grew by 11.4% year-over-year, a notable slowdown from the robust 20% growth seen in the previous year. This moderated pace might reflect a stabilization phase in rural financing rather than a crisis, indicating that the agricultural sector is maturing in its credit demand.
In contrast, the industrial sector saw a 7.3% growth in credit, slightly down from 8.4% previously, yet buoyed by strong performance in key industries such as petroleum, coal products, nuclear fuels, engineering, construction, and paper products. These sectors continue to attract robust financial support, suggesting a resilient backbone in industrial growth despite the broader credit tightening.
The services sector, often seen as a bellwether of economic dynamism, recorded a 13.0% increase in credit growth, down from 21.4% in the prior year. This mixed performance is emblematic of the sector’s diversity. Notably, the computer software segment experienced accelerated growth, reflecting the ongoing digital transformation that is reshaping traditional business models. However, the deceleration observed in non-banking financial companies (NBFCs) and other segments signals that not all subsectors within services are equally equipped to navigate the new lending environment.
Overall, loan growth at Indian banks continued its slowdown for the eighth consecutive month in February, according to central bank data released on Thursday. This moderation is largely attributed to a decline in personal and credit card lending following the RBI’s tighter regulations.
The figures indicate that banks’ credit expanded by 12% year-on-year in February, down from a 16.6% increase during the same period last year—excluding the merger impact of HDFC Bank with its parent, Housing Development Finance Corp. When factoring in the merger, loan growth in February was 11%, compared with 20.5% in the year-ago period.
The recent RBI actions and their subsequent impact on personal loans are indicative of a broader trend toward more measured and risk-conscious lending. While industries such as agriculture and manufacturing continue to show resilience, the deceleration in personal loans serves as a timely reminder that unbridled credit growth is neither sustainable nor prudent.
For lenders, the focus must shift toward quality over quantity—ensuring that credit allocation supports long-term economic growth without inflating risk. Policymakers, on the other hand, need to remain vigilant, fine-tuning regulations to strike the right balance between stimulating growth and preventing financial excesses.
The decline in personal loans growth following RBI’s interventions marks a turning point in India’s credit ecosystem. While it may temper short-term consumption, this shift toward cautious borrowing is likely to make Indian banks stronger.